SA’s rat­ing nei­ther down nor out...

In­ter­ven­tion by Gord­han and Mo­go­eng – and in­sti­tu­tional ca­pac­ity – saves the coun­try from junk sta­tus ... for now

CityPress - - News - JUSTIN BROWN news@city­press.co.za

It ap­pears Fi­nance Min­is­ter Pravin Gord­han and Chief Jus­tice Mo­go­eng Mo­go­eng saved South Africa from a Moody’s In­vestors Ser­vice down­grade. At mid­night on Fri­day, the rat­ings agency an­nounced it would keep the coun­try’s credit rat­ing un­changed. There was relief at the Trea­sury, where Gord­han and his team have sus­tained a four-month bat­tle to bol­ster con­fi­dence in SA Inc. But Moody’s al­tered its out­look from sta­ble to neg­a­tive, paving the way for the rat­ing to be down­graded in the months ahead. The neg­a­tive out­look is like an in­spec­tor watch­ing your next move. Moody’s said yes­ter­day it was op­ti­mistic about higher lo­cal growth next year and more reli­able power sup­ply.

Eskom’s new boss, Brian Molefe, has dra­mat­i­cally cut the pat­tern of load shed­ding, which was one rea­son for the fal­ter­ing econ­omy; on Fri­day, Pres­i­dent Ja­cob Zuma pledged South Africa would “never, ever” have load shed­ding in fu­ture.

Moody’s liked the fis­cal dis­ci­pline mea­sures an­nounced in Gord­han’s Fe­bru­ary Bud­get speech – the man­darins at the Trea­sury have the bu­reau­cracy’s free-spend­ing ways on watch.

Party bud­gets have been slashed; travel is be­ing whit­tled down and ten­ders are be­ing in­spected for value for money.

And South Africa’s courts and the coun­try’s “in­sti­tu­tional strength” also got a thumbs up as key el­e­ments to fight­ing grow­ing cor­rup­tion.

“In Moody’s opin­ion, the Con­sti­tu­tional Court judg­ment against the pres­i­dent over the mis­use of public funds, and Par­lia­ment’s re­jec­tion of the rul­ing of the Public Pro­tec­tor and, more re­cently, the high court rul­ing to re­in­state cor­rup­tion-re­lated charges against the pres­i­dent ... at­test to the strength and in­de­pen­dence of South Africa’s Con­sti­tu­tion and ju­di­cial sys­tem, and re­newed at­ten­tive­ness to bring­ing cor­rup­tion out into the open and main­tain­ing the rule of law.”

The agency as­sesses the South African govern­ment’s abil­ity to re­pay its debt at two notches above sub-in­vest­ment grade or “junk” sta­tus, while Stan­dard & Poor’s and Fitch Rat­ings both have the coun­try one notch above junk sta­tus.

De­spite Moody’s stay of ex­e­cu­tion on South Africa’s rat­ing, the pre­vail­ing ex­pec­ta­tion is that the lo­cal rat­ing could be cut to junk dur­ing the sec­ond half of this year.

For­mer fi­nance min­is­ter Trevor Manuel wel­comed Moody’s de­ci­sion and at­trib­uted it to Gord­han and the work he and his team have done to­gether with busi­ness and with labour.

It was go­ing to be a tough bat­tle to main­tain the rat­ing.

“We are not see­ing a set of ac­tions that re­flect the spirit of our laws and a po­lit­i­cal di­rec­tion based on sound man­age­ment …

“We have to pause and re­flect and say: are we hold­ing our­selves ac­count­able?” Manuel said.

Mo­hale Ralebitso, Black Busi­ness Coun­cil (BBC) CEO, said that the BBC had no doubt about the in­sti­tu­tional strength of the coun­try and he was en­cour­aged that Moody’s had come to the same con­clu­sion.

The agency was also en­cour­aged by the fact that the govern­ment had in­di­cated that projects such as the con­struc­tion of mas­sive new nu­clear power fa­cil­i­ties and na­tional health in­sur­ance would be de­vel­oped only at a pace and scale that the bud­get al­lowed.

Na­tional Trea­sury said in re­sponse to the Moody’s an­nounce­ment that the govern­ment’s de­ci­sion to im­ple­ment fis­cal dis­ci­pline to re­turn public fi­nances to a sus­tain­able path, while pro­tect­ing core so­cial and eco­nomic pro­grammes, was the cor­rect strat­egy.

Ralebitso wel­comed the af­fir­ma­tion of South Africa’s credit rat­ing by Moody’s, but added that there was still more that needed to be done.

The govern­ment’s rev­enue col­lec­tion was pos­i­tive, but the ex­pen­di­ture side needed some more fo­cus. “The govern­ment needs to cut back spend­ing and tighten its purse strings.” Colin Cole­man, man­ag­ing di­rec­tor of Gold­man Sachs, said that the Moody’s de­ci­sion, while too early to de­clare vic­tory, was a cause to cel­e­brate. The re­port gave well-bal­anced cov­er­age of the un­der­ly­ing is­sues found in the South African econ­omy.

The Moody’s re­port ap­peared to sug­gest that eco­nomic growth in the coun­try had bot­tomed out and Manuel said that South Africa was not grow­ing at the lev­els nec­es­sary to deal with poverty.

The re­turn of Gord­han to Na­tional Trea­sury, af­ter Nh­lanhla Nene was ini­tially re­placed by David van Rooyen, “demon­strated de­ter­mi­na­tion to bring the public fi­nances un­der con­trol”, Moody’s said.

The move to place the lo­cal rat­ing on a neg­a­tive out­look recog­nised the down­side risks as­so­ci­ated with the growth, fis­cal and po­lit­i­cal out­look.

Moody’s an­nounce­ment yes­ter­day fol­lows the de­ci­sion by the agency on March 8 to place South Africa on a re­view for a down­grade and the visit by Moody’s an­a­lysts in the mid­dle of March.

Manuel added: “Head of Moody’s SA team is Kristin Lin­dow, who has been on the team since 1994/95 and has been do­ing this for longer than any­body has. She sits in a place akin to the cock­pit of a fighter jet – so the flow of in­for­ma­tion on a reg­u­lar ba­sis is all picked up.”

Moody’s growth fore­cast for next year, at 1.5%, is one of the more op­ti­mistic and com­pares with Ned­bank’s es­ti­mate of 0.9%, the World Bank’s view of 1.1%, In­ter­na­tional Mon­e­tary Fund’s fore­cast of 1.2% and Na­tional Trea­sury’s pro­jec­tion of 1.7%.

The key is­sues that busi­ness and govern­ment were look­ing at in­cluded boost­ing small and medium en­ter­prises to im­prove growth, labour re­forms to al­low for peace and pro­duc­tiv­ity in the work place, and state-owned en­ter­prise re­forms, Cole­man added.

There was lots of work to do, but the fruits of this work would bear in the short to medium term, he said.

The move by Moody’s could also en­cour­age the other agen­cies to be more cau­tious about down­grad­ing South Africa’s credit rat­ing fur­ther.

Stan­dard & Poor’s is set to re­view and is­sue its lat­est re­port on South Africa next month.

Trevor Manuel

Mo­go­eng Mo­go­eng

Pravin Gord­han

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